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Remittances in Europe and Central Asia (ECA): The medium term outlook is not bad?

Sudharshan Canagarajah's picture

Thanks to Dilip Ratha and his team at the World Bank, we have an update on global remittance trends. Since it came during Thanksgiving week in the US, some people may have missed interesting highlights from it. I want to draw attention to trends in remittances to ECA*, which have been a source of concern given the continuing crisis situation in the Euro area.

The first good news, which is global in nature but has implications for ECA, is that in 2012 remittances are likely to increase by 6.5% compared with 2011. This demonstrates that global economic trends are better than in 2011, leading to almost $400 billion in remittance flows to developing countries. In addition, the medium term global outlook is that remittances will grow at 8% and 10 % in 2013 and 2014, respectively. This is good news for ECA.

Remittances to ECA in 2012 are estimated to be $41 billion, the same level as in 2011. The lack of growth is in contrast to last year, when remittances grew by almost 11%. The main reason for the slowdown in remittances  is the protracted and ongoing crisis across the Eurozone. 

Remittances to ECA did not decline in 2012 only because Russia has continued to grow and has benefited from high oil prices; these have supported a strong labor market that has helped migrants. Strong remittances inflows to ECA from Russia have been offset  by declining remittances from Western European countries.

However, the medium term outlook is more positive. Remittances are expected to grow at almost 10, 12, and 14% respectively in 2013, 2014, and 2015. This again is thanks to Russia whose growth has continued to be steady despite Eurozone perils. However, the medium term positive outlook is based on the Eurozone recovery. But the trajectory of recovery and the hostile views towards migrants in Europe may have an impact on the positive medium term outlook.

Remittances are very important to many countries in ECA. As a proportion of GDP, remittances to ECA were among the highest in the world in 2011. Four out of the top 10 countries receiving most remittances as a share of GDP are from ECA – Tajikistan (47%), Kyrgyz Republic (29%), Moldova (23%) and Kosovo (18%).

Another interesting trend in ECA is that pervasive national unemployment in some migrant destinations (such as Spain) is having an impact on unemployment of migrants compared to natives. But it is also interesting to note that in countries like Germany where the economy has remained steady, migrant employment has increased faster than native born employment! Also the report shows that European economic outlook, which is not too positive, has driven more migrants from Western Europe back to their home country (e.g. Romania and Poland) compared to African migrants. This has led to declining remittances in countries like Romania, Poland, and Bosnia whose migrants were  employed in European countries affected by the crisis and where unemployment levels are high. The data show that Serbia, Albania, Kosovo, and Romania are seeing double-digit declines in remittances in 2012. This is in contrast to migrants to the Russian economy, especially from Armenia, Georgia, Kyrgyz Republic, Moldova, and Tajikistan where remittances have increased in 2012, thanks to Russian positive economic growth spell.

A few other points also worth noting: the Russian corridor (Russia-CIS) continues to have globally the lowest cost for remittance transfers at 2% compared to 12% for transfers to Sub Saharan Africa, which is the highest globally. In Europe Germany still has a 14% average remittance transfer cost. On another bright note, Russia has already implemented IMF BPM6 which helps to better monitor and account for remittances and many countries in CIS have started this process of adopting BPM6. MiRPAL has been supporting this initiative over the last two years among the 9 CIS countries with hands on training and conversion of BOP data.

Factors that temper the outlook for remittances to ECA in 2013-15 include a continuation of the crisis in Europe, a weakening of oil prices, and hostile policies towards migrant employment in destination countries. But on the whole, CIS is doing well in 2012 and the outlook for ECA during 2013-15 is not too bad!


*ECA refers to developing countries in Europe and Central Asia, according to World Bank definitions available here.